The 2011-12 Budget has focused a great deal on funding infra projects. SK Goel, CMD of India Infrastructure Finance Company (IIFCL), tells Kumud Das how the Budget will help in mobilising more resources for infra projects.

Will you be keen to set up any infra debt fund?

The IIFCL will also be eligible to set up infra debt fund (IDF). However, amendments are needed in acts like the Irda Act , PFRDA Bill and Income Tax Act for the IDF to be effective. Government will not contribute to IDF, which is basically meant for attracting investments from FIIs.

It is likely to be in place within three months. Also, it is likely to act as a hybrid between a trust and a company. Moreover, it may be designed to target three categories like foreign pension fund, venture capital fund, ECB.

As per the existing Irda Act, insurers can invest in only those funds that have AAA rating. However, amendment in the Act will permit insurers to invest in funds with AA ratings. Similarly, as per the existing PFRDA Act, there is no exemption in income tax for those players of the pension fund, that are willing to invest in papers with AA rating. Hence, the proposed amendment will allow them the avail the exemptions. It will attract more such investors to park their funds with the IDF.

What about your plan on the credit enhancement scheme for corporates who are planning raise resources for the sector?

Yes, we are busy with the credit enhancement scheme for which the draft has already been submitted and government?s nod is awaited. The IIFCL is in the process of appointing another consultant for finding out the feasibility of the credit enhancing scheme, which is going to be its forthcoming project.

Earlier, we had appointed Icra for the same. But we believe that the report submitted by Icra was incomplete. We want to cover more areas before we finally kick off the scheme later this month.

Hence, we are appointing another consultant. We want to know things like probability of default (POD) and loss given default (LGD) in the infrastructure sector through the new report.

Under the credit enhancement scheme, which was basically to attract long-term infrastructure fund from insurance and pension fund companies, we plan to enhance the credit rating of such bonds by at least two notches.

The new report is likely to help us know the viability, structure and above all the features of the product. The proposed scheme will guarantee long-term bonds for infra companies.

What is the status of IIFCL?s takeout financing scheme?

It is doing well. So far, seven banks have joined us and more are likely to join. At present, the investment amount involved in the scheme is R1,500 crore. Currently we have seven projects under the scheme which is likely to go up to 30-40 during the next financial year. Finance minister has announced contributing R5,000 crore for our takeout financing scheme.

RBI has issued a line of credit to IIFCL to raise a sum of $5 billion? How much have you invested out of it and by when will you be using the remaining amount?

The line of credit is to be invested by us over a period of three years. We have already invested a sum of $0.8 billion. The idea is to meet the requirement of the overseas expansion plans for Indian corporate houses. We will be doing it through our UK subsidiary.

How much sanctions have you made so far?

We have a net sanction of R21,000 crore as on September 30, 2010 and it is meant for 154 projects.

What is your average cost of fund?

Our average cost of fund is currently at 7.14%. This cost will go up slightly post the infra bond being floated by us.